3 min read
Why Two Faith-Based Funds Can Look Nothing Alike
A growing market, competing definitions, and evolving standards. Here's what advisors wanted to know about faith-based investing.
Faith-based investing is evolving from a specialized segment of the market into a growing area of interest for financial advisors and investors seeking to align portfolios with religious convictions.
During our recent webinar, Morningstar researchers examined how faith-based investment strategies are defined, how screening approaches vary across religious traditions, and where growth opportunities and challenges remain in the market. We also demonstrated how advisors can use Morningstar Direct to identify and evaluate faith-based funds. The audience Q&A highlighted many of the practical questions advisors face when evaluating faith-based investing strategies for client portfolios.
Q: How Is Faith-Based Investing Different From ESG Investing?
A: While there can be overlap between faith-based and ESG investing, the two approaches often begin with different objectives. Faith-based strategies typically start with religious doctrine and moral convictions, while ESG frameworks emphasize environmental, social, and governance considerations.
Born explained that "some of the faith-based guidelines are just not on the road map for a typical ESG kind of framework," citing issues like contraception or abortion as areas that matter to faith-based investors but rarely appear in conventional ESG screens. For advisors, this means a fund labeled ESG isn't automatically a substitute for a faith-based mandate, even when the portfolios look similar on paper.
Q: How Does Morningstar Determine Whether a Fund Is Catholic, Christian, Jewish, or Sharia-Compliant?
A: Morningstar’s current approach focuses largely on how funds identify themselves in official documentation. The research team uses language models to analyze prospectus text and determine whether a strategy explicitly aligns itself with a particular religious institution or framework.
As Born explained, “in most cases they are self-identifying to a specific church,” and Morningstar is focused on whether funds “explicitly have language to align them to a specific religious institution.” Advisors should treat the tags as a useful starting point for identifying faith-based products, not as a guarantee of doctrinal alignment at the holdings level.
Q: Do Non-Denominational Christian Funds Publish Clear Investment Guidelines?
A: Yes, the larger specialist managers in the space, such as GuideStone and Eventide, publish detailed guidelines outlining their investment approach. That said, advisors should understand that many of the underlying decisions still involve subjective judgment rather than a fixed rulebook.
Born pointed to the ongoing debate over stem cell research as an example, noting that "there's just a lot of subjectivity when it comes to the issues in the space." Advisors working with faith-based clients should read these guidelines closely rather than assume a shared standard applies across providers.
Q: Are Faith-Based Labels Actually Useful for Fund Selection?
A: Yes, but advisors should treat them as a starting point rather than a complete due diligence process. Morningstar’s research found meaningful variation in implementation across faiths, denominations, and geographies, making it essential to evaluate individual methodologies.
Born said, “I do think they are genuinely useful,” but added that investors and advisors should take time to understand how a strategy applies its faith-based principles in practice. All in all, labels can help narrow the universe, but portfolio construction decisions still require a deeper look under the hood.
Q: How Can Advisors Screen for Faith-Based Funds Using Morningstar’s Platforms?
A: Faith-based tags are currently available in the grid view of Direct Advisory Suite and in Morningstar Direct's full screener, allowing advisors to filter open-end funds and ETFs by religious classification alongside other criteria like Morningstar category or Morningstar Ratings.
Looking Ahead as Demand Grows
Faith-based investing continues to expand globally, but the market remains highly diverse, with significant differences in implementation, screening criteria, standardization, and portfolio outcomes. It is not a single, uniform category, and treating it that way risks misrepresenting a fund to a client. For advisors serving faith-based clients, we encourage looking past the label—review the fund's actual exclusions, sector tilts, and instrument structures before recommending it, and use tools like Morningstar Direct to build that picture systematically.
